March 19, 2012
Authored by: Letitia Maxfield and Norvell E. Brasch
In 2010 the average cost of a private room in a nursing home in the United States was $6,965 per month or $83,580 annually. Over 40% of those who live past the age of 65 will need nursing home care, a percentage that does not include those who will require additional assistance if they wish to stay in their own homes. Neither Medicare nor most health insurance plans covers long-term care.
The likelihood that you or a loved one will need long-term care, combined with the cost of such arrangements, suggest that you start the conversation now, with a family member, attorney or insurance agent. There are planning options available regardless of age and circumstances.
Unlike Medicare, Medicaid can help defray the cost of long-term care for those in greatest need. Medicaid is a joint federal and state program and the eligibility rules vary from state to state, but in all cases the income and the “countable resources” (essentially all the assets with a few exceptions) of the applicant cannot exceed very low limits. In most states an applicant’s countable resources must be less than $2,000 to qualify for Medicaid coverage. The definition of countable resources is broad, even including any gifts made in the five years prior to application.
With careful advance planning, taking advantage of various exemptions under the Medicaid rules, assets can be structured to ensure qualification for Medicaid when long-term care services are required. Without pre-need planning an applicant must first exhaust a significant amount of their assets before Medicaid will cover the costs of long-term care. This process is often referred to as “spending down.” Unfortunately, “spending down” an applicants assets leaves them with few resources to pay for medical, legal or personal expenses that are not covered by Medicaid. Although family and friends are often willing to pay for additional expenses such as uncovered medical devices, clothing, day-trips, or the cost of a legal advocate, an elderly or disabled person without their own financial resource is often vulnerable and without liberty.
Private Long Term Care Insurance
Private long-term care insurance can provide an alternative or a supplement to Medicaid coverage. These policies vary in the maximum daily benefit, the term, the exemption period and the monthly premium. Policies with a five-year term can provide stopgap coverage during the Medicaid “look back period” if the need for long-term care arises without the opportunity to pre-plan for Medicaid eligibility.
In addition, over 40 states now work with private insurers to offer “Partnership-qualified plans” specifically designed to supplement Medicaid. With these policies, when the policy’s benefits are exhausted and long-term care services are still required, Medicaid will “disregard” countable resources equal to the amount paid by your long-term care insurance policy. For example, if your long-term care insurance paid $80,000 for one-year of nursing home care, when you apply for Medicaid you can have $82,000 in countable resources and still be eligible for Medicaid long-term care benefits. That $80,000 would be available for your medical, legal or personal needs during your life or to be gifted upon your death.
Partnership-qualified plans offer a number of other benefits that may not be included in non-qualifying long-term care policies, including inflation protection, in-home and in-facility care coverage, current and future tax benefits and consumer protections.